High street setback dampens fears of rate hike

The prospect of a rise in interest rates before the general election has almost vanished after official figures yesterday showed that the volume of retail sales fell sharply in December. The surprise setback on the high street sent shares soaring to a record last night.

The sales figures were the latest in a series of statistics providing Kenneth Clarke with the ammunition to resist Bank of England advice that the cost of borrowing should go up.

"The Chancellor is home and dry provided we do not see the pound weaken," said Leo Doyle, UK economist at Kleinwort Benson.

The pound, whose strength gave Mr Clarke the rationale for not raising base rates earlier this month, climbed further yesterday. Its index against a range of currencies gained 0.3 to 97.2.

Sterling also gained more than a pfennig to reach DM2.7142, within a few pfennigs of the rate from which it tumbled out of the exchange rate mechanism in 1992.

The FTSE 100 index closed nearly 24 points higher at 4,219.1, having retreated slightly from earlier highs after Wall Street opened.

Although City economists still disagree about whether interest rates should go up, there was near-unanimity yesterday that any move would be postponed until after the election. Only an extremely buoyant figure for GDP growth in the final quarter of 1996, due to be published on Monday, could tip the balance the other way.

December's retail sales performance helped the case against tougher monetary policy. The volume of sales fell 0.8 per cent during the month, although the estimated increase in November was revised to 0.9 per cent from 0.7 per cent.

Of last month's decline, 0.6 per cent was due to a sharp fall in sales of clothing and footwear following sharp increases in the previous two months. Sales in this sector remained the fastest-growing in the year to December, up 7.5 per cent, and discounts in the January sales could lead to a rebound.

Sales in "other" stores - mainly specialist shops such as chemists and jewellers - also fell and there was a small decline in non-store retail sales - mainly mail order - whose growth has been slowing for some months. There were increases in all other categories. These were strongest in department stores and supermarkets. The volume of sales at food stores increased by 0.4 per cent in December and 2.6 per cent year-on-year.

Tim Congdon, one of the Treasury's panel of "wise persons", said that one month's worth of weak data did not mean the case for tighter monetary policy had evaporated. "I would not put much weight on the figures around Christmas. The inflationary dangers remain," he said.

But others were more doubtful. "There is now enough of a question about the pace of growth for it not to matter waiting a month or two," said Michael Saunders, an economist at Salomon Brothers.

The next monthly meeting between the Chancellor and the Governor of the Bank of England will take place on 5 February.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
The two faces revealed by the ultraviolet light
newsScholars left shaken after shining ultraviolet light on 500-year-old Welsh manuscript
News
Rosamund Pike played Bond girld Miranda Frost, who died in Die Another Day (PA)
news
Arts and Entertainment
books
News
newsHow do you get your party leader to embrace a message and then stick to it? With people like this
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat